Economic Value-Added (EVA®) statement

Economic Value-Added is the surplus generated by an entity after meeting an equitable charge towards providers of capital. It is the post-tax return on capital employed (adjusted for the tax shield on debt) less the cost of capital employed. Companies which earn higher returns than cost of capital create value, and companies which earn lower returns than cost of capital are deemed harmful for shareholder value.

in Rs. crore, except as otherwise stated

2010

2009

2008

2007

2006

Cost of capital

Return on risk free investment (%)

7.20

7.00

8.00

8.00

7.50

Market premium (%)

5.00

7.00

7.00

7.00

7.00

Beta variant

0.68

0.74

0.76

0.99

0.78

Cost of equity (%)

10.60

12.18

13.32

14.97

12.96

Average debt / total capital (%)

–

–

–

–

–

Cost of debt – net of tax (%)

NA

NA

NA

NA

NA

Weighted Average Cost of Capital (WACC) (%)

10.60

12.18

13.32

14.97

12.96

Average capital employed

20,786

16,025

12,527

9,147

6,177

Economic Value-Added (EVA®)

Operating profits

6,956

6,434

4,640

3,877

2,654

Less: Tax

1,681

919

685

386

313

Cost of capital

2,203

1,952

1,669

1,369

801

Economic Value-Added

3,072

3,563

2,286

2,122

1,540

Enterprise value

Market value of equity

1,50,110

75,837

82,362

1,15,307

82,154

Add: Debt

–

–

–

–

–

Less : Cash and cash equivalents

15,819

10,993

8,307

6,033

4,709

Enterprise value

1,34,291

64,844

74,055

1,09,274

77,445

Return ratios

PAT / average capital employed (%)

30.1

37.4

37.2

42.2

40.1

EVA® / average capital employed (%)

14.8

22.2

18.2

23.2

24.9

Enterprise value / average capital employed (x)

6.5

4.0

5.9

11.9

12.5

Growth (%)

Operating profits

8.1

38.7

19.7

46.1

29.6

Average capital employed

29.7

27.9

37.0

48.1

42.6

EVA®

(13.8)

55.9

7.7

37.8

36.0

Market value of equity

97.9

(7.9)

(28.6)

40.4

34.5

Enterprise value

107.1

(12.4)

(32.2)

41.1

33.4

Note:

Cost of equity = return on risk-free investment + expected risk premium on equity investment adjusted for our beta variant in India.
Figures above are based on consolidated Indian GAAP financial statements.
Cash and cash equivalents includes investments in liquid mutual funds and certificate of deposits.